Denmark's housing slump is nearing its end as the excesses of the nation's property boom fade and the gap between people's earnings and the price of a home narrows, an analyst has claimed. "We think the bulk of the adjustment process, of needing to sort out what had obviously been excesses, that this will potentially be completed by the end of this year," said Standard & Poor's analyst Per Tornqvist. "So we are close to the end of the adjustment process." Home prices have plunged about 25 per cent since a 2007 peak, and declines this year will average 3.5 per cent, the government estimates. The housing crisis, combined with rising job losses, has suffocated demand and pushed the economy to the brink of its second recession in less than a year. Any recovery in Denmark's housing market is likely to be gradual, S&P estimates. "There are some signs of improvement, though we do not expect a rapid turnaround," Tornqvist said. "The problem with a high private debt burden is that it is a very long-term trend to change the leverage in society. You're almost looking at a multi-decade process, certainly a process that can last a decade." Gross domestic product sank 0.5 per cent in the second quarter compared to the first, and contracted at an annual rate of 0.9 per cent. The slump was led by a 4.2 per cent decline in business investments and a 0.9 per cent fall in consumer spending. Danes have the largest household debt burdens in the world, relative to income. Indebtedness was 322 per cent of disposable incomes in 2010, S&P estimates. "It's come down very slightly since then but it's obviously not a ratio that changes very fast," Tornqvist said. AAA-rated Denmark has relied on its haven status, supported by a government debt level that's less than half the euro-zone average and a current account surplus, to keep its borrowing costs low. The country pays less than Germany to borrow for 10 years and has charged investors to hold its two-year debt through most of July and August. The stable outlook on Denmark's top credit rating is unaffected by last week's budget proposal, S&P said. The rating company sees this year's 4.6 per cent deficit of GDP narrowing to 3 per cent in 2013. That compares with the government's forecast for a 4 per cent shortfall this year, and a 1.9 per cent deficit in 2013. The yield on Denmark's 3 per cent note due in November 2021 rose one basis point to 1.096 per cent on August 31, 24 basis points less than yields on similar-maturity German bunds. Denmark's two-year yield was little changed at minus 0.144 per cent, or 11 basis points less than bunds. A capital influx into Denmark has also forced the central bank, which pegs the krone to the euro, to cut its benchmark rates to record lows and bring its deposit rate to an unprecedented minus 0.2 per cent. Even rates on short-term Danish mortgage bonds may sink below zero, according to Rune Brinch Kristensen, chief analyst at Nykredit, the country's largest mortgage lender and Europe's biggest issuer of covered bonds backed by home loans. While S&P's main scenario is that monetary policy will "continue as it is in the medium term," Danes are at risk of depending too much on record-low borrowing costs to sustain their debt loads, Tornqvist said. "It's a key weakness in Denmark that the economy is reliant on low interest rates," he said. "Should interest rates rise sharply, that is potentially the most painful economic shock to Denmark."